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Image courtesy of Flickr (Licensed) by © Steve Greaves.

One of the most important aspects of any agreement is the scope of work to be performed.  All too often disputes arise between general contractors and their subcontractors concerning the scope of the subcontractor’s responsibilities after work has begun.

It is not difficult to imagine a scenario where the project work has begun and the superintendent begins directing the performance of work that was never contemplated by the subcontractor.  Even worse, is when the subcontractor specifically excluded from its bid the work now been ordered.  How does this all too common dispute arise?

The question of who wins this battle is answered by
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Licensed image from Thinkstock/Nastco

Compared to prime (general) contractors, it is much more difficult for subcontractors to perfect lien and bond claims on private projects.  Subcontractors must give timely notice of non-payment to the owner.  If the subcontractor claimant does not have an agreement with the prime contractor, notice must also be given to the prime contractor.  Failure to comply with the pre-lien notice requirements is fatal to a subcontractor’s lien claim

Prime contractors, on the other hand, are not burdened with pre-lien notice requirements.  They can still claim a lien (even if no affidavit is recorded) and the value of their lien claim is not affected by retainage.

The reasons for this disparate treatment stems from the fact that a general contractor’s lien rights derive from the Texas Constitution, common-law, contract and statute.  Subcontractors’ lien rights are derived solely from statute and are totally dependent upon compliance with these statutes. This system creates many obstacles and pitfalls for subcontractors that properly provide labor and materials.
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Licensed image from Thinkstock/Wavebreakmedia, Ltd
Licensed image from Thinkstock/Wavebreakmedia, Ltd

After struggling to cobble together your mechanic’s lien affidavit, you’ve driven 150 miles to reach the county clerk’s office before close of business. Today is the filing deadline.  No worries, you made it!! But now you stand toe-to-toe and face-to-face with a clerk that refuses to record your claim.  WHAT NOW???

More often than you might imagine, this same scene plays out across Texas.  I’ve had to send my fair share of post-filing fight flowers to mend fences with clerks that do not understand the limits of their own discretion.  The fights are not limited to affidavits claiming mechanic’s liens.  I’ve witnessed clerks refuse to accept indemnity bonds, statutory payment bonds and other time critical records.

I will guarantee that posted in the office of every clerk is a sign advising,
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ThinkstockPhotos-480601875 (change ahead)
Licensed image from Thinkstock/abluecup

Any construction contract worth its salt includes provisions for modifying the agreement, either by agreement or by unilateral action.  The most common modifications increase or decrease the contract scope, contract dollar amount and time.  Commonly referred as a “change order”, when used correctly and consistently, this instrument works to avoid disputes when payment becomes due, the project seems untimely or the budget is exceeded.  They can also become a double-edged sword if not carefully reviewed and understood in the context of the contract language requiring their use.
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Licensed image from Bulkimport/Photodisc/Thinkstock

Do you know any criminals? 

If you have worked in the construction industry for very long then the likely answer is, “Yes”!  I’m not talking about folks that you believe are cheats, scoundrels and liars.  Nope.  Instead, I’m talking about contractors, subcontractors and owners that misapply funds for construction projects received for the benefit of those that furnish labor and materials.  It is rare (in fact, I don’t know of a similar statute) to find a serious crime located outside of the Texas Penal Code.  However, Chapter 162 of the Texas Property Code, commonly referred to as the “Texas Trust Fund Statute,” makes the misapplication of $500 or more a Class A misdemeanor.  If a person
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Image courtesy of Flickr (Licensed) by © Nick Carter
Image courtesy of Flickr (Licensed) by © David~O

Don’t lose downstream claims correcting construction defects.

Your project did not go well. Subcontractors performed poorly, the architect was impossible and delivery occurred late.  You were lucky to break even and glad to be finished.  A couple of years pass and the phone rings.  It’s the owner.  The project is now leaking and merchandise is being ruined.  Your investigation confirms construction defects and the owner is threatening a lawsuit if you don’t immediately begin repairs.  What’s the next step?

What is your plan?

Suppose you no longer work with the responsible subcontractor?  Do you self perform the work? Hire a replacement?  How do you appease the owner?  If you plan to sue the derelict sub or his insurance company for the repair work or the owner’s damages, it is imperative to consider how rushing to perform repair work now will impact your future claims.
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Image courtesy of Flickr (Licensed) by © Mike Licht, NotionsCapital.com
Image courtesy of Flickr (Licensed) by © mark6mauno.

That Public Works Project you are bidding may not be bonded after all.  Under Texas Law, state and local projects with a price tag of $25,000 or more are required to be bonded.  Apparently, at least one Texas municipality has decided to save money and eliminate the bonding requirement from one of its projects.  This is a clear violation of law that places huge risks on the backs of subcontractors in the event their prime contractors experience a financial collapse.

According to an August 30, 2014 article in the Kilgore News Herald,
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